Oct. 30 (Bloomberg) -- Representative Ron Paul, the Texas Republican who has called for an end to the Federal Reserve, said legislation he introduced to audit monetary policy has been “gutted” while moving toward a possible vote in the Democratic-controlled House.
The bill, with 308 co-sponsors, has been stripped of provisions that would remove Fed exemptions from audits of transactions with foreign central banks, monetary policy deliberations, transactions made under the direction of the Federal Open Market Committee and communications between the Board, the reserve banks and staff, Paul said today.
“There’s nothing left, it’s been gutted,” he said in a telephone interview. “This is not a partisan issue. People all over the country want to know what the Fed is up to, and this legislation was supposed to help them do that.”
Paul, a member of the House Financial Services Committee, said Mel Watt, a Democrat from North Carolina, has eliminated “just about everything” while preparing the legislation for formal consideration. Watt is chairman of the panel’s domestic monetary policy and technology subcommittee.
Keith Kelly, a spokesman for Watt, declined to comment and said Watt wasn’t immediately available for an interview. Watt’s district includes Charlotte, headquarters of Bank of America Corp., the biggest U.S. lender.
Congressman Ron Paul calls The Dollar Meltdown "truly a must read."
In The Dollar Meltdown you’ll find out:
How the price of gold moves higher with each increase in the U.S. national debt ceiling. (The lid on the national debt was raised an astonishing 7 times in the Bush years and once already in Obama’s presidency. And another debt ceiling hike is right around the corner!)
How the short frenzy of bailouts, stimulus spending and government guarantees, quickly grew to more than the entire U.S. federal debt! (And why they lit the fuse for The Dollar Meltdown!)
Why Federal Reserve chairmen Greenspan and Bernanke failed to foresee the growing financial crisis – even as they added fuel to its fires! (And why the more-of-the-same policies spell an even bigger calamity than the one we’re living through!)
How the visible national debt of $12 trillion is dwarfed by America’s real, but hidden, national debt of almost $100 trillion! (Like an iceberg, most of the nation’s debt is hidden from view. And like the Titanic, the ship of state can’t be turned in time to avoid a financial collision.)
What your share of the hidden national debt is: For a family of four it’s about $1.3 million. (Since America’s median household income is only $50,000, you see why there is no prospect of the debt ever being paid.)
About the sleight-of-hand by which the Federal Reserve creates money out of thin air! (And why they do it!)
How the Adjusted Monetary Base has exploded as the Federal Reserve revs up the engines of inflation. (And like a race car revving up at the starting line, what happens when the clutch is popped!)
About America’s growing “command economy” and the three things that accompany an out-of-control debt-driven monetary policy. (Price controls, rationing, and intrusive bureaucracies.)
What Persian Gulf oil producers and other countries are doing to prepare for the dollar meltdown. (And the similar steps you can take to protect yourself and your family!)
Why energy independence – promised by every president from Nixon to Obama – is a costly myth! (And why China gave up that myth to secure its energy future.)
Why a growing global population and billions of new capitalists will make agriculture and natural resources the investment safe havens of the future. (And discover simple strategies that allow you to participate without the leverage risk, margin calls and emotional toll that these opportunities used to demand.)
But most importantly, The Dollar Meltdown was written to help you avoid being victimized by decades of governmental irresponsibility. Investor Peter Schiff calls The Dollar Meltdown "a sensible plan to protect your wealth." And he adds this warning: "Don't wait for the dollar to melt down – protect your assets before they melt down with it."
The U.S. Dollar is in trouble. A currency crisis is not a pleasant event. I hope you will enjoy the book and profit from it.
Whenever Ayn Rand met someone new – an acolyte who’d traveled cross-country to study at her feet, an editor hoping to publish her next novel – she would open the conversation with a line that seems destined to go down as one of history’s all-time classic icebreakers: “Tell me your premises.” Once you’d managed to mumble something halfhearted about loving your family, say, or the Golden Rule, Rand would set about systematically exposing all of your logical contradictions, then steer you toward her own inviolable set of premises: that man is a heroic being, achievement is the aim of life, existence exists, A is A, and so forth – the whole Objectivist catechism. And once you conceded any part of that basic platform, the game was pretty much over. She’d start piecing together her rationalist Tinkertoys until the mighty Randian edifice towered over you: a rigidly logical Art Deco skyscraper, 30 or 40 feet tall, with little plastic industrialists peeking out the windows – a shining monument to the glories of individualism, the virtues of selfishness, and the deep morality of laissez-faire capitalism. Grant Ayn Rand a premise and you’d leave with a lifestyle...
It’s easy to chuckle at Rand, smugly, from the safe distance of intervening decades or an opposed ideology, but in person – her big black eyes flashing deep into the night, fueled by nicotine, caffeine, and amphetamines – she was apparently an irresistible force, a machine of pure reason, a free-market Spock who converted doubters left, right, and center. Eyewitnesses say that she never lost an argument. One of her young students (soon to be her young lover) staggered out of his first all-night talk session referring to her, admiringly, as “Mrs. Logic.” And logic, in Rand’s hands, seemed to enjoy superpowers it didn’t possess with anyone else. She claimed, for instance, that she could rationally explain every emotion she’d ever had. “Tell me what a man finds sexually attractive,” she once wrote, “and I will tell you his entire philosophy of life.” One convert insisted that “she knows me better after five hours than my analyst does after five years.” The only option was to yield or stay away. (I should admit here my own bias: I was a card-carrying Objectivist from roughly age 16 to 19, during which time I did everything short of changing my last name to Randerson – a phase I’m deeply embarrassed by, but also secretly grateful for.),,, Read the rest...Sam Anderson NY Magazine
MARVELING THAT "TURBO TAX TIM" IS TREASURY SECRETARY!
The Full Story Of How Tim Geithner Secretly Bailed Out Wall Street And Screwed The Taxpayer Last Fall!
Clusterstock: When the historians finally finish sorting through the appalling decisions that have been made in the past two years, this one will probably be at the top of the heap.
Last fall, as AIG began to realize how screwed it was, it started negotiating with the counterparties to all the credit default swaps it had written. One of the AIG's goals was to persuade these counterparties--including Goldman Sachs--to accept buyouts as low as $0.40 cents on the dollar.
Then Tim Geithner, head of the New York Fed, stepped in.
A few weeks later, the counterparties--all of whom voluntarily did business with AIG and understood the risks--were bailed out at par: 100 cents on the dollar.
"This Thursday, October 29, 2009, marks the release of a new book I highly recommend. If you have woken up to the feeling that something is terribly wrong with our economy, especially your economy. The main stream media is daily rushing to assure you that the worst is over and your life is getting better. If you want to know what is really happening to your savings, your earnings, your pensions and your country then don't walk, RUSH out and buy the new book, The Dollar Meltdown !
Written in easily understood prose, author and radio talk show host Charles Goyette presents his case on what is happening to the U.S. dollar, why it is happening, who is responsible and most importantly how you can survive it.
Charles Goyette brings three things to the table to devastate politicians and so called "bankers." First his wonderful organizational and communication skills that have served him well as both an orator and a writer. Second, his fantastic memory that pulls together decades of reports on governmental and corporate theft that has built up into the mess we inevitably will be forced to now live through. Third, his lifelong honest pursuit of the facts and at personal cost his willingness to stand against the lying politicians and corporate heads who only want to mislead people away from the truth of their looting....
Powell Gammill, Editor. Read the entire review HERE
Paul Craig Roberts, Counterpunch.org: The financial insiders running the Treasury, White House, and Federal Reserve shifted to taxpayers the cost of the catastrophe that they had created. When the crisis hit, Henry Paulson, appointed by President Bush as Rubin’s replacement as the Goldman Sachs representative running the US Treasury, hyped fear to obtain from “our” representatives in Congress with no questions asked hundreds of billions of taxpayers’ dollars (TARP money) to bail out Goldman Sachs and the other malefactors of unregulated derivatives.
When Goldman Sachs recently announced that it was paying massive six and seven figure bonuses to every employee, public outrage erupted. In defense of banksters, saved with the public’s money, paying themselves bonuses in excess of most people’s life-time earnings, Lord Griffiths, Vice Chairman of Goldman Sachs International, said that the public must learn to “tolerate the inequality as a way to achieve greater prosperity for all.”
A fascinating analysis of Hayek's The Road to Serfdom, which could be subtitled "Why the worst get on top in the world of politics".
"...Even Liberal Socialists, as opposed to collectivists, in their desire to plan the economy must establish institutions of discretionary planning and grant authority to planners [bureaucrats] to exercise their political power in order to accomplish the task entrusted to them. The complexity of the task implied in rationally planning an economic system would require that planners be granted almost unlimited discretion. And, as a consequence, we should expect that only those that have a comparative advantage in exercising discretionary power will survive..."
Peter Boettke on Hayek's The Road To Serfdom. Download the pdf here.
The big profits made by some of Wall Street’s leading banks are “hidden gifts” from the state, and taxpayer resentment of such companies is “justified”, George Soros, the fund manager, said in an interview with the Financial Times.
“Those earnings are not the achievement of risk-takers,” Mr Soros said. “These are gifts, hidden gifts, from the government, so I don’t think that those monies should be used to pay bonuses. There’s a resentment which I think is justified.”
Posted by Lew Rockwell on October 24, 2009 06:23 AM
Hans Hoppe makes the point in Salamanca that historians will look back on August 15, 1971, as the beginning of the end for the US empire. That was the day when Dick Nixon—by dictatorial fiat—severed the final tie between the dollar and gold. Nixon thus inaugurated a world monetary system that was unprecedented in the annals of mankind: pure fiat money, with central banks unconstrained in their money printing. It has lasted 38 years, but is clearly in its death throes, just like the US empire.
As a reader of The International Forecaster you already know the U.S. Dollar is in trouble.In fact irresponsible politicians, dependence on foreign creditors, metastasizing debt, and the Federal Reserve’s monetary malpractice guarantee a dollar calamity!
A currency crisis is not a pleasant eventDo you know how to protect yourself and your family?
I want you to read THE DOLLAR MELTDOWN, a brand new book by my friend Charles Goyette. The Dollar Meltdown is a book about the financial future and what you can do about it....
... Congressman Ron Paul says “The Dollar Meltdown is a must read!” I agree. Learn how to protect yourself and your family! Read it yourself and by all means pass it along or buy another copy for friends and family members who need to learn what you know from The International Forecaster!
Murphy responds to Horwitz on the 20-21 Depression
...OK now that you've got the context, check out Horwitz's post. He takes the 1920-1921 trump card head-on and argues that it would have been even less painful if the Fed had done what he recommends. In other words, the 1930s was the worst ever, because you had Hoover's New Deal-lite combined with dumb deflationary Fed policy. The 1920-1921 depression was better than that, but it was still really bad, because you had Harding's laissez-faire policies combined with dumb deflationary Fed policy.
If I had to give a reaction on the spot, I'd say that I disagree with Horwitz. In particular, I think part of why there was a depression in 1920-1921 was that the huge WW1 bubble was popped, since the Fed had become alarmed by the 20% price inflation. So if that's right, I don't see how you could have had the corrective readjustment of resources, without most of the pain that they did in fact experience. Ditto for the fiscal policies: I think there had to be a period of "idle resources" as the US economy reconfigured itself from the arsenal of democracy back into the engine of consumerism.
"A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects." -- Robert A. Heinlein
… After having thus successively taken each member of the community in its powerful grasp, and fashioned him at will, the supreme power then extends its arm over the whole community. It covers the surface of society with a network of complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate to rise above the crowd. The will of man is not shattered but softened, bent and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannise, but it compresses, enervates, extinguishes and stupefies a people, ‘til each nation is reduced to be nothing better than a flock of timid and industrial animals, of which government is the shepherd.
Alexis de Tocqueville Democracy in America (1837)
Suspicion must always fall on those who attempt to silence their opponents.
~Ian Buckley
"A professional politician is a professionally dishonorable man. In order to get anywhere near high office he has to make so many compromises and submit to so many humiliations that he becomes indistinguishable from a streetwalker."
H. L. Mencken
We will not recognize it as it rises. It will wear no black shirts here. It will probably have no marching songs. It will rise out of a congealing of a group of elements that exist here and that are the essential components of Fascism....
It will be at first decorous, humane, glowing with homely American sentiment. But a dictatorship cannot remain benevolent. To continue, it must become ruthless. When this stage is reached we shall see that appeal by radio, movies, and government-controlled newspapers to all the worst instincts and emotions of our people. The rough, the violent, the lawless men will come to the surface and into power. This is the terrifying prospect as we move along our present course.
John T. Flynn, American Mercury, February 1941
This and no other is the root from which a tyrant springs; when he first appears he is a protector. – Plato
The moral and constitutional obligations of our representatives in Washington are to protect our liberty, not coddle the world, precipitating no-win wars, while bringing bankruptcy and economic turmoil to our people.
~Ron Paul
'Emergencies' have always been the pretext on which the safeguards of individual liberty have been eroded.
--Hayek
"Sending in good people to reform the state is like sending in virgins to reform the whorehouse." --
Albert Jay Nock
In a letter to James Madison, Thomas Jefferson asked how, "one generation of men has a right to bind another." He concluded by saying, "No generation can contract debts greater than may be paid during the course of its own existence."
But contracting debts greater than may be paid during the course of its own existence is precisely what Americans are doing. In fact, they are contracting debts that increase over the course of their own lifetimes.
Why, the Government is merely...a temporary servant...Its function is to obey orders, not originate them.
The improvement in sentiment in Wall Street may be traced almost directly to the encouraging reports which the financial community is receiving from the leading industries of the country, according to investment trust executives. They say that the current rise in security prices is firmly grounded on the improvement in business conditions that began in December.
New York Times February 14, 1930
Two months later the Dow hit a level it would not see again for about 25 years. Happy Valentine’s Day, pal.
In the Crash of 1929, the Dow lost 48% of its value. Six months later it rallied back 48% (because this was from a starting point half as high, this meant it got back 52% of the loss from the Crash). In 2007 – 2009, the Dow lost 54% of its value. It has now rallied back 54%, or in other words, it has regained 45% of this loss in value.
Japan has gone through a similar process of dealing with an exploded real estate bubble. The Nikkei hit a peak of about 39,000 in 1989. It has moved downwards in a sawtooth pattern for the past 20 years, with big rallies in 95 – 96, 98 – 99 and 03 – 07. Today, 20 years after its peak, the Nikkei is at about 10,000. ... It...seems slightly surreal to me to read newspaper trend stores about people getting bored with the incredible austerity of the past, oh, 10 months. Similarly, political debates around cap-and-trade, health care, entitlements, the $100 billion of new schools spending in the stimulus bill with no obvious prospects for improving reading or math skills, and so on that causally describe reducing U.S. economic output or efficiency in support of some lofty goal strike me as entirely detached from the reality of how harsh the real choices in front of us are likely to be.
In case my recent apologetic post on price inflation left some readers without a rudder, let me be clear: Even though I jumped the gun on my prediction of sharp price increases, I still think: (a) The real economy is going to be in the toilet for years, and (b) We are going to see the worst price inflation in US history. I am open to the possibility that (b) is wrong, but I am as confident in (a) as I could be for a general macroeconomic prediction.
Consequently, I personally am using the extra breathing room as a gift. I am currently carrying a lot more credit card debt than I'd like, and--given my views--I really need to redouble my efforts to get serious and start hacking it away.
If I'm right and we are now in the third bubble of the 2000s--first dot-com, then housing market, now US Treasurys--the eventual bust will be worse, the longer the delusion persists. But on the bright side, it gives those of us who see it coming, longer to protect our own households.
When trying to time a bubble, it's much better to err on the side of leaving too soon.
On Tuesday, March 11th, 2008, somebody — nobody knows who — made one of the craziest bets Wall Street has ever seen. The mystery figure spent $1.7 million on a series of options, gambling that shares in the venerable investment bank Bear Stearns would lose more than half their value in nine days or less. It was madness — "like buying 1.7 million lottery tickets," according to one financial analyst.
But what's even crazier is that the bet paid.
At the close of business that afternoon, Bear Stearns was trading at $62.97. At that point, whoever made the gamble owned the right to sell huge bundles of Bear stock, at $30 and $25, on or before March 20th. In order for the bet to pay, Bear would have to fall harder and faster than any Wall Street brokerage in history.
The very next day, March 12th, Bear went into free fall....
Whoever bought those options on March 11th woke up on the morning of March 17th having made 159 times his money, or roughly $270 million. This trader was either the luckiest guy in the world, the smartest son of a bitch ever or…
Or what? That this was a brazen case of insider manipulation...
GARY NORTH: Whenever you hear someone speak of gold's having intrinsic value, you can be sure that he has a confused theory of economics in general and monetary theory in particular. There is no such thing as a free lunch. There is also no such thing as intrinsic value.
The meaning of the word "intrinsic" is always difficult to pin down. It means "autonomous." It implies fixity. There is neither in economic life.
It was Carl Menger's profound insight in 1871 to recognize that economic value is imputed by each individual. The value of the tools of production, the value of land, and the value of labor expended in the creation of a final consumer good do not move forward in time from the value of the inputs. They move in response to entrepreneurs' estimates of future value imputed by customers. This was Menger's great discovery.
Economic value is subjective. It cannot be measured. There is no objective measuring rod of economic value. Nevertheless, the outcomes of competing bids for specific goods are objective: prices. How can this be?
Each person ranks the importance to him of those scarce resources he is interested in. That is to say, he imputes value to each economic good in relation to all the other economic goods that he is considering. He has a scale of values: first, second, third, etc. He imputes these rankings to specific resources. He then bids for ownership of an array of goods, either as a future buyer (seller of money) or as an existing owner (buyer of money).
Would-be customers compete against other would-be customers. On the other side of the potential transaction, would-be sellers compete against other would-be sellers. Out of these competing bids on an open market comes an array of objective prices. Subjective, imputed value produces objective prices by way of a gigantic auction.
WHAT DOES PETER SCHIFF SAY ABOUT "THE DOLLAR MELTDOWN" BY CHARLES GOYETTE?
"Charles Goyette makes a strong case for a coming dollar collapse, and provides a sensible plan to protect your wealth. Don't wait for the dollar to melt down---protect your assets before they melt down withit."
— Peter Schiff, president of Euro Pacific Capital and author of Crash Proof 2.0
"Financially crippled due to our continued wars for empire and the printing of billions of new dollars to repay political cronies in the financial world has left us in a precarious position in Afghanistan."
Michael Gaddy, LewRockwell.com: We can all look back at the wonderful decision that was made to send more troops to Korea. If we had not, we could have been bogged down in a quagmire there that would have required 50 plus years of American lives, involvement and money. What a wonderful decision it was to send more troops to Vietnam. If we had not, we could have lost over 58,000 soldier's lives; killed millions of Vietnamese soldiers and civilians and been forced to flee the country with our tails between our legs, deserting our allies to the horrors of communist retribution. Good thing our wonderful leaders had the wisdom and courage to send "more troops." Now we are forced with the same dilemma; send more troops or face military defeat.
The question is: why are we in Afghanistan in the first place? Now that time has erased the emotions of retaliation for the events of 9/11 and our country elected a new leader who campaigned on the principle of bringing an end to our involvement in these costly wars, why the call for more troops? Could it be we are again simply following the dictates of the power cabal as Major General Smedley Darlington Butler so eloquently outlined in his outstanding work, War is a Racket?
Anyone with a rudimentary knowledge of our quest for empire over the past six decades realizes that Obama’s contemplation of whether to send additional troops to Afghanistan is simply those who control him providing Obama with the opportunity to look "presidential." The decision to send additional troops was reached prior to the situational comedy of General McChrystal’s leaked "confidential report" to the Washington Post and Obama’s National Security Advisor’s public admonishment of McChrystal’s failure to follow the chain of command. All of this is nothing but a well-rehearsed, though poorly camouflaged hoax. Additional troops will be sent to Afghanistan within a very short period of time and Obama really has no say in the matter. The question is: why? Read the rest...
I started this as a long comment on the Hayek and deflation thread, but figured I'd make it separate post.
Yes, during 1920-21 we had deflation and yes we didn't have a Great Depression. But we did have a significant drop in GDP and unemployment of around 12%, and a recession that lasted about two years. It's possible that better monetary policy could have prevented such a steep recession. I know free banking could have. (And it's worth mentioning for all this debate about what the Fed should and shouldn't do that it's all about the world of the second best.)
And I absolutely agree on the importance of Hoover's wage policies for the depth of the Great Depression. I make that argument in my recent EJW piece. Part of the point is that the combination of government-generated severe wage rigidity and a falling money supply is a particularly deadly one. However, either alone is also bad. Put them together and you, not surprisingly, get 25% unemployment and all the rest.
Put differently: the 1920-21 episode was, in fact, a severe, though not particularly long, recession. Allowing the money supply to fall isn't painless. Allowing the money supply to fall in an environment of severe downward wage rigidity is VERY "not painless." The 1920-21 episode doesn't demonstrate that deflation is harmless. It DOES demonstrate that if you have deflation, it will be less bad if you have nominal wages that are flexible downward. That recession is the best example of why Hoover's wage policies were such a mistake. Hoover, as Secretary of Commerce, wanted to intervene in that recession but Harding held him off and we had "only" a severe recession. The 1920-21 episode does not, in my view, show that deflation by itself is painless. Read the rest... Steve Horwitz at Boettke's blog
“Big Brother is Watching You!” Such was the cautionary phrase the citizens in George Orwell’s “1984” were regularly reminded of. According to a recent article [read this] in Mother Jones, today it is Google that is watching you:
Over the years, Google has collected a staggering amount of data, and the company cheerfully admits that in nine years of operation, it has never knowingly erased a single search query. It’s the biggest data pack rat west of the nsa, and for good reason: 99 percent of its revenue comes from selling ads that are specifically targeted to a user’s interests. “Google’s entire value proposition is to figure out what people want,” says Eric Goldman, a professor at Silicon Valley’s Santa Clara School of Law and director of the High Tech Law Institute. “But to read our minds, they need to know a lot about us.”
Every search engine gathers information about its users—primarily by sending us “cookies,” or text files that track our online movements. Most cookies expire within a few months or years. Google’s, though, don’t expire until 2038. Until then, when you use the company’s search engine or visit any of myriad affiliated sites, it will record what you search for and when, which links you click on, which ads you access. Google’s cookies can’t identify you by name, but they log your computer’s IP address; by way of metaphor, Google doesn’t have your driver’s license number, but it knows the license plate number of the car you are driving. And search queries are windows into our souls, as 658,000 aol users learned when their search profiles were mistakenly posted on the Internet: Would user 1997374 have searched for information on better erections or cunnilingus if he’d known that aol was recording every keystroke? Would user 22155378 have keyed in “marijuana detox” over and over knowing someone could play it all back for the world to see? If you’ve ever been seized by a morbid curiosity after a night of hard drinking, a search engine knows—and chances are it’s Google, which owns roughly half of the entire search market and processes more than 3 billion queries a month.
Scary thoughts indeed. But it gets worse:
If you are a Gmail user, Google stashes copies of every email you send and receive. If you use any of its other products—Google Maps, Froogle, Google Book Search, Google Earth, Google Scholar, Talk, Images, Video, and News—it will keep track of which directions you seek, which products you shop for, which phrases you research in a book, which satellite photos and news stories you view, and on and on. Served up à la carte, this is probably no big deal. Many websites stow snippets of your data. The problem is that there’s nothing to prevent Google from combining all of this information to create detailed dossiers on its customers, something the company admits is possible in principle. Soon Google may even be able to keep track of users in the real world: Its latest move is into free wifi, which will require it to know your whereabouts (i.e., which router you are closest to).
Are Americans hooked on Google modern day Oceanians? After all, with its purchase of YouTube, Big Brother…er, I mean Google, now knows what videos you’re watching, too.
—Noel Sheppard is the Associate Editor of NewsBusters.
All the chatter that accompanied gold hitting new highs this month made it hard not to think of “the gnomes of Zurich.” With that richly evocative image of sinister forces behind the pound sterling’s woes, Harold Wilson, the British labor party figure (and eventual prime minister) skillfully deflected attention from the British economic policies and policy-makers actually to blame.
The recent account in the British press that Gulf oil states and others are planning to abandon dollar pricing of oil, came complete with “secret moves” and “secret meetings.” One prominent talk show host asked me on the air if this was part of “shadowy conspiracy” against the United States.” Politico.com ran a piece headlined, “Whodunit? Sneak attack on U.S. dollar,” and reported that government circles were abuzz with whispers that behind it all were gold traders who wanted to tank the dollar.
If there is secretive business afoot, the conspirators are hiding in plain sight. My book, The Dollar Meltdown, also describes the likely development of a basket of currencies and gold’s role for global oil pricing. It was printed and being shipped to the nation’s book dealers when Robert Fisk’s reporting sent the dollar down and gold up.
It’s hard to believe anyone could have missed the discussions in OPEC circles about the re-pricing of petroleum. A year ago an official of the Gulf Cooperation Council, consisting of six Persian Gulf states, discussed its planning for a central bank and gold reserves. About the same time at a Moscow conference Chinese premier Wen Jiabao and Russia’s Prime Minister Putin were nothing short of explicit about their interest in diversifying away from the dollar, a prospect Putin alluded to once again last week in Beijing.
Despite global nervousness about the dollar/debt train wreck in the making, reporters immediately sought out officials to issue denials that any such oil pricing meetings had taken place. Two years ago when Chinese officials first began discussing the so-called “nuclear option” of dollar disinvestment, a New York Time editorialist thought it noteworthy that “China's central bank announced that it had no plans to sell off its dollar assets.” Only editorial writers would expect for market-makers to be notified about such plans in advance.
A more helpful approach would be to ask if a breakdown of the post-1971 dollar exchange standard is justified by objective conditions. That same realistic approach also justifies a skeptical view of pronouncements from Washington, as U.S. fiscal and monetary authorities continue to pledge their devotion to a strong dollar. Now that the dollars has resumed its long-term decline, one might consider adopting the realism of Chinese students. At Beijing University last summer when Treasury Secretary Timothy Geithner spoke about his faith in a strong dollar and insisted that "Chinese assets are very safe," they laughed.
Commerce Secretary Gary Locke shed crocodile tears for the falling dollar last week, but only for a millisecond, before he proclaimed the prosperity that a cheap dollar would provide U.S. manufacturing. Isn’t that pretext wearing a little thin? After all, the U.S. dollar lost 20 percent of its purchasing power during Bush’s eight years – and lost a fourth of its manufacturing base, 4.4 million jobs at the same time.
If a cheap dollar doesn’t produce prosperity, could the gnomes in the Treasury and at the Federal Reserve have other reasons to opt for the devaluation of the dollar? They go about their subterranean toil, undermining the dollar seemingly heedless of the destructive forces unleashed by an unreliable currency, destructive to capital formation, the propensity of people to provide for their future, and the very fabric of civil society itself. Still there remain proponents of “inflating away the debt,” bad paper on the balance sheets of banks and other financial institutions, mortgage and corporate debt, and most especially government debt. Dollar destruction can provide for the revaluation of what is otherwise unsustainable federal debt, both the explicit debt and unfunded liabilities. For example, a four percent inflation rate reduces the real value of a $12 trillion dollar debt by $480 billion. The Dollar Meltdown provides simple strategies for individuals to protect themselves and their families from the slow-motion debt repudiation of inflation and the chaos of a currency crisis.
On the subject of devaluation, it might be helpful to remind those who deny any prospect for a changed dollar role in oil markets, that even until the early 1970’s a fourth of the global petroleum trade was still conducted in the British pound sterling.
But serial devaluations of the pound finally made it so unattractive that OPEC implemented its policy of 100 percent dollar pricing. Only this time, OPEC Secretary General Abdalla El-Badri has conceded, a change from the dollar would not take as long as the change from the pound sterling.
I am outraged and not just about Goldman Sachs, but about a process that allows, even encourages political pandering, by time and time again rewarding leveraged riverboat gamblers and failed institutions and at taxpayer expense.
I am outraged that real people are suffering massively while the influence peddlers have stolen the country for their own personal benefit.
I am outraged at a political system that is totally unresponsive to the American people.
I am outraged by campaign contribution and lobbying processes that allows corporations to buy votes with donations.
I am outraged how legislators ignored the wishes of the people who clearly did not want these bailouts in the first place.
I am outraged that very little of this is in mainstream media. Why is this stuff not on the frontpage of every newspaper in the country or at least in the editorial pages?
I am outraged that the average US citizen is not aware of any of this, instead depending on CNBC, or "The View" for their interpretation of the world.
I am outraged how special interest groups have exercised their power to monopolize the economy for the benefit of themselves, US citizens be damned.
I am outraged that all these bailout programs are doing nothing to alleviate the massive consumer debt problems. Every program, virtually every program was designed to bailout lending institutions, not consumers.
I am outraged at fees charged by banks receiving bailouts.
I am outraged over government pension plans and government pay scales massively out of line with the private sector.
I am outraged that Congress and this administration thinks the solution to massive budget deficits are still higher budget deficits in excess of a trillion dollars.
I am outraged that US citizens are not concerned enough and not educated enough to demand change.
I am outraged that the two party system has failed. Neither party has delivered meaningful change on budgets, on taxes, on social security, on deficit spending, on the size of government, on military spending, or fighting needless wars.
I am outraged at a Fed that purports to be "inflation fighters" when the only source of inflation in the word are central bankers, and their fractional reserve lending policies.
I am outraged that Greenspan and Bernanke could not see a housing bubble that 1000 bloggers could see.I am outraged at the selective memory of Bernanke when speaking to Congress about these problems.
I am outraged that Bernanke's one sided response to asset bubbles, letting them grow without end, then bailing out the financial institutions that cause them.
I am outraged the Fed exists at all. It is a useless organization that cannot see bubbles, that panders to banks, that supports inflationary policies that are tantamount to theft by fraud.
I am outraged that the Obama Administration promised changed and did not deliver. "Yes We Can" was a lie. The reality is "It's Business As Usual, Only Worse, With Higher Deficits".
I am outraged there is not enough outrage over this.
"I do not understand how financial institutions could think they could take taxpayer money and turn around and act like it's business as usual," Warren says. "I don't understand how they can't see that the world has changed in a fundamental way - it's not business as usual. All I can say right now is they seem to be winning this argument."
In the accompanying video, taped at The Economist's Buttonwood Gathering at Pace University, Warren was asked about Treasury Secretary's claim at the same event that the government has been "remarkably effective" in combating the financial Read the rest... Tech Ticker
Since last spring the US dollar has been rapidly losing value. The currency of the hegemonic superpower has declined 14 per cent against the Botswana pula, 22 per cent against Brazil’s real, and 11 per cent against the Russian ruble. Once the dollar loses its reserve currency status, the US will be unable to pay for its imports or to finance its government budget deficits.
Offshoring has made Americans heavily dependent on imports, and the dollar’s loss of purchasing power will further erode American incomes. As the Federal Reserve is forced to monetize Treasury debt issues, domestic inflation will break out. Except for the banksters and the offshoring CEOs, there is no source of consumer demand to drive the US economy.
The political system is unresponsive to the American people. It is monopolized by a few powerful interest groups that control campaign contributions. Interest groups have exercised their power to monopolize the economy for the benefit of themselves, the American people be damned.
Charles Joins Dr. Ron Paul, Thomas Woods, and Others for this Year's Annual Freedom Summit!
The Freedom Summit conference offers a highly distinguished assortment of the best, brightest, and most entertaining people in the freedom movement today!
You know how a few months after you first get a GPS system in your car, you no longer can find your way to the grocery store on your own? Well that's what Robert Wenzel's site EPJ has done to me, in terms of staying abreast of the government's financial shenanigans.
In this post Wenzel reproduces some very scary quotes from the Federal Open Market Committee, and how they are making it a "top priority" to develop "tools" to withdraw the excess liquidity from the financial system before all hell breaks loose (I'm paraphrasing). Let's remind ourselves what all the fuss is about:
Right now, the banks have the legal ability (i.e. they can still satisfy their reserve requirements) to lend out some $850 billion in new loans in step one. But then remember we are in a fractional reserve system, so as that initial burst of lending gets deposited back, a second (and smaller) wave of new lending could occur. Using a back-of-the-envelope 10% multiplier, there are enough excess reserves in the system to support a total of $8.5 trillion in new loans.
In practice that is too much; let's be conservative and call it a mere 5 trillion new US dollars in the wallets and checking account balances of the public. How much is that? Well right now M1 (basically cash held by the public, checking accounts, travelers' checks, and other really liquid assets) is about $1.65 trillion. So an injection of an additional $5 trillion would mean a quadrupling of the narrow "money supply" held by the public. So if gas costs $2.50 a gallon right now, it would cost $10 a gallon when everything settled down.
Ah, but this assumes the worldwide demand to hold dollars stays constant, which it surely would not in such an environment. I emailed back and forth with Jeff Hummel a few months back, and we came to the (very rough) conclusion that if the worldwide demand to hold dollars fell in half, that would be akin to a 30% increase in the domestic money stock (using the current levels, not the uber-inflated one). So let's round it off to $11 / gallon gasoline.
The thing is, it doesn't matter what Bernanke et al.'s plans are to make interest on reserves. If and when price inflation starts getting out of control, the banks aren't going to sit idly by while the dollar crashes. It's no good to have $850 billion in reserves on deposit with the Fed--rolling over at 0.25% APR--if CPI is rising at 3% per month and yields on 10-year Treasurys have risen to double-digits. Sure, Bernanke could jack up the interest he pays on reserves, but that just makes the problem grow exponentially. At some point, even Wall Street analysts will have to realize that the only point to having a stockpile of US dollars is that you spend (at least some of) them. Read the rest... Bob Murphy's blog
It is a cliché that if we do not study the past we are condemned to repeat it. Almost equally certain, however, is that if there are lessons to be learned from an historical episode, the political class will draw all the wrong ones – and often deliberately so. Far from viewing the past as a potential source of wisdom and insight, political regimes have a habit of employing history as an ideological weapon, to be distorted and manipulated in the service of present-day ambitions. That’s what Winston Churchill meant when he described the history of the Soviet Union as “unpredictable.”
For this reason, we should not be surprised that our political leaders have made such transparently ideological use of the past in the wake of the financial crisis that hit the United States in late 2007. According to the endlessly repeated conventional wisdom, the Great Depression of the 1930s was the result of capitalism run riot, and only the wise interventions of progressive politicians restored prosperity. Many of those who concede that the New Deal programs alone did not succeed in lifting the country out of depression nevertheless go on to suggest that the massive government spending during World War II is what did it.1 (Even some nominal free-marketeers make the latter claim, which hands the entire theoretical argument to supporters of fiscal stimulus.)
The connection between this version of history and the events of today is obvious enough: once again, it is claimed, wildcat capitalism has created a terrific mess, and once again, only a combination of fiscal and monetary stimulus can save us.
In order to make sure that this version of events sticks, little, if any, public mention is ever made of the depression of 1920–21. And no wonder: that historical experience deflates the ambitions of those who promise us political solutions to the real imbalances at the heart of economic busts. The conventional wisdom holds that in the absence of government countercyclical policy, whether fiscal or monetary (or both), we cannot expect economic recovery – at least, not without an intolerably long delay. Yet the very opposite policies were followed during the depression of 1920–21, and recovery was in fact not long in coming.
The economic situation in 1920 was grim. By that year unemployment had jumped from 4 percent to nearly 12 percent, and GNP declined 17 percent. No wonder, then, that Secretary of Commerce Herbert Hoover – falsely characterized as a supporter of laissez-faire economics – urged President Harding to consider an array of interventions to turn the economy around. Hoover was ignored.
Instead of “fiscal stimulus,” Harding cut the government’s budget nearly in half between 1920 and 1922. The rest of Harding’s approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third. The Federal Reserve’s activity, moreover, was hardly noticeable. As one economic historian puts it, “Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.”2 By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and was only 2.4 percent by 1923... Tom Woods at LRC
It is not mathematics. When mathematical techniques are used correctly they are extremely helpful -- perhaps essential -- to clear thinking on many topics. But when questions are restricted due to mathematical tractability, or models are developed which assume what they are supposed to prove, mathematical techniques can hinder progress in the social sciences.
This argument is not new -- especially to careful readers of the Austrian tradition of economic scholarship. This was essentially the argument with those who developed the mathematical model of market socialism in the 1930s and 1940s, and with those who depicted the market economy in the perfectly competitive general equilibrium model in the 1960s and early 1970s. These mathematical models Mises, Hayek, Kirzner respectively attempted to demonstrate assumed what they had to prove, and in doing so blocked from our economic view essential characteristics of the market economy --- namely processes of adjustment to changing conditions, competition as rivalry, and entrepreneurial alertness as the driving force of the market economy.
This argument has not been that persuasive to the profession of economists (to say the least). There have been various warnings over the years about the excessive use of mathematics voiced across the methodological spectrum in economics. But they have gone in one ear and out the other for the most part.
However, consider this very thoughtful discussion of 2009 Nobel Prize by Paul Romer.
Economists who have become addicted to skyhooks, who think that they are doing deep theory but are really just assuming their conclusions, find it hard to even understand what it would mean to make the rules that humans follow the object of scientific inquiry. If we fail to explore rules in greater depth, economists will have little to say about the most pressing issues facing humans today – how to improve the quality of bad rules that cause needless waste, harm, and suffering.
Cheers to the Nobel committee for recognizing work on one of the deepest issues in economics. Bravo to the political scientist who showed that she was a better economist than the economic imperialists who can’t tell the difference between assuming and understanding. Boettke from his blog
Gold prices settled at another nominal high Tuesday as the dollar's slide to its lowest since August 2008 against the euro fueled buying of precious metals.
Silver, platinum, palladium and rhodium also rallied to multi-month peaks.
Most-active December gold futures settled up $7.50 at $1,065 an ounce on the COMEX division of the New York Mercantile Exchange after earlier touching $1,069.70
The all-time inflation-adjusted high of 1980 would be over $2,300 in 2009 dollars.
Gold has rallied 12 percent since the beginning of September as the dollar has weakened... Read the rest... Reuters
CHARLES, "THE DOLLAR MELTDOWN," CITED BY FOX BUSINESS NEWS...
FOXBusiness Ken Sweet, Oct. 9, 2009
For most traders, gold’s surge upward has been directly tied to the downward spiral of the dollar. The U.S. Dollar Index, which tracks the dollar against a basket of major currencies, has fallen 13.7% from the early March lows, while gold has gained 11.1% in the same period.
The dollar has weakened primarily on investor concerns that the U.S. government has taken on too much debt – a record $1.4 trillion in the 2009 fiscal year alone, the non-partisan Congressional Budget Office said Wednesday.
Combining this year’s deficits with the previous years, the national debt now stands at more than $11.9 trillion.
For some investors, those enormous deficits are reason enough to put some money into hard assets like gold and other precious metals.
“The market is coming to a realization that both parties are unable to restrain spending, and that’s going to only lead to a weak U.S. dollar in our future,” said Charles Goyette, author of an upcoming book “The Dollar Meltdown.”
The specter of inflation also concerns some investors, leading them into hard assets.
The heart of the modern monetary system is fractional reserve banking. This system is based on fraud. At the very heart of the modern economy is fraud – fraud on a gigantic scale.
What is the nature of this fraud? Counterfeiting. Banks are government-licensed institutions that issue bogus IOUs. Because these IOUs function as money, they are counterfeit money. This is the heart, mind, and soul of all modern banking.
There is only one textbook in money and banking that states explicitly that all fractional reserve banking rests on fraud: Murray Rothbard's The Mystery of Banking. It is not used in any university. It never has been. It was published in 1983. It went out of print almost immediately. It is on-line here.
Rothbard takes the reader through the traditional T-account exercise that is common to all upper-division textbooks in money and banking. Unlike all the others, his book shows how the process of making deposits and lending the money involves counterfeiting whenever the depositor has the legal right to withdraw his money on demand. Read the rest... Gary North
...What concerns me is that once thinkers go down this road, they lose sight of an essential wisdom of the classical political economists. F. A. Hayek summarized the essential wisdom as follows:
... the main point about which there can be little doubt is that [Adam] Smith's chief concern was not so much with what man might occasionally achieve when he was at his best but that he should have as little opportunity as possible to do harm when he was at his worst. It would scarcely be too much to claim that the main merit of the individualism which he and his contemporaries advocated is that is a system under which bad men can do least harm. It is a social system which does not depend for its functioning on our finding good men for running it, or on all men becoming better than they now are, but which makes use of men in all their given variety and complexity, sometimes good and sometimes bad, sometimes intelligent and more often stupid.*
I have termed this intellectual quest to find the right set of institutions that permit neither the assumption of benevolence nor the assumption omniscience to be invoked by the theorist as "robust political economy"...
David Hume once remarked that it is a maxim that "in contriving any system of government, and fixing the several checks and controuls of the constitution, every man ought to be supposed a knave, and to have no other end, in all his actions, than private interest. By this interest we must govern him, and, by means of it, make him, notwithstanding his insatiable avarice and ambition, co-operate to public good. Without this," Hume adds, "we shall in vain boast of the advantages of any constitution, and shall find, in the end, that we have no security for our liberties or possessions, except the good-will of our rulers; that is, we shall have no security at all."**
In short, in discussing monetary policy in the wake of the crisis there are theoretical ideas which many believe to be true which are in fact not true, and there are ideas which while true are impractical at the current moment. But there are also ideas which are only true if we permit the introduction of assumptions which should not be permitted if we want to think about robust political economy. It does us little good to assume benevolence and omniscience on the part of public policy decision makers...
What in our contemporary history of central bank policy should give us any reason to not follow Friedman and tie the hands of the monetary authority so tightly that the bonds cannot be broken, let alone Hayek and point out that the only robust political economy option when it comes to central banking is to abolish it? Boettke from his blog
Designed for advanced undergraduate and graduate students of economics, this seminar delves into the fundamentals and implications of austrian economics as developed by Menger, Bohm-Bawerk, Mises, Hayek, and Kirzner. The latest work by the newest generation of Austrian scholars will be explored. FEE (Foundation for Economic Education)
Many people compare today's recession to the last big one in 1980-82. But Scott Sumner keeps insisting that this one is different. At risk of re-inventing the wheel, I decided to take a look at the nominal GDP (NGDP) data for myself.
The facts are as striking as Scott keeps telling us. Here are the quarterly numbers; here's the annual rate of change. From October, 1980 to October, 1982, U.S. NGDP rose by 13.6%. From April, 2007 to April, 2009, NGDP rose by 1.1%. From April, 2008 to April, 2009, the growth rate of NGDP was -2.4%. The last time the U.S. had a year of negative NGDP growth was from April, 1957 to April, 1958 - over half a century ago.
Looking at the numbers makes it hard to believe in a quick return to full employment. During the 1980-2 recession, there was high inflation. All employers had to do to get real wages down to full employment levels was (a) avoid nominal wage increases, and (b) wait. Now that we've actually got deflation, waiting doesn't help. Even with a pay freeze, workers are getting more overpaid by the day.
But aren't labor markets more flexible than they used to be? Many economists I respect say so, but I just don't see much evidence. Actually, there's an important reason to think they're less flexible than they used to be: Inflation's been so low for so long that man in the street has all but forgotten the distinction between real and nominal wages.
You might respond, "Who cares what workers have forgotten?" But if you're an employer, you have plenty of reason to care. Normal people - and even some Ph.D. economists I've known - bitterly resent nominal wage cuts. Bitter workers are uncooperative and therefore unproductive. Maybe even scary.
Other economists I know keep comparing the performance of the "flexible wage" sectors of the economy to the "rigid wage" sectors. But frankly, I'm not convince that they're categorizing the sectors correctly. If the main cause of nominal rigidity is simply psychology, the problem could be severe even for the self-employed. Consider: If you had a nanny, would you feel comfortable looking her in the eye to tell her that she's getting a 2% nominal pay cut to adjust for deflation? I wouldn't.
Pessimism does not come naturally to me. But even in the 80s, it took about seven years for unemployment to fall a little less than six percentage-points. If NGDP growth stays this low for the next seven years, I could easily see unemployment falling at only half the pace of the 80s recovery. I'm even getting a little worried about losing my bet with John Quiggin, but in the end I think the Europeans will mess up about as badly as we do.
Update: Bob Murphy points out that inflation has been +1.8% since December. It's worth pointing out, but it's also worth pointing out that he's calculating from the local minimum. Even since December, there have been two months with deflation. Bryan Caplan Econlog
"Nothing good can come from the Federal Reserve," writes Texas Congressman Ron Paul in his latest book hitting shelves this week, titled "End the Fed."
"It is the biggest taxer of them all. Diluting the value of the dollar by increasing its supply is a vicious, sinister tax on the poor and middle class."
Paul makes the case that the Fed is the main culprit responsible for the current economic mess the country faces through the destructive policies of cheap credit and excessive money printing.
"Prosperity can never be achieved by cheap credit," says Paul. "If that were so, no one would have to work for a living. Inflated prices only deceive one into believing that real wealth has been created."
The Federal Reserve, created in 1913, has been acting as the main central bank of the United States for nearly one hundred years. Many Americans are either not sure or not interested in what role the Fed plays in managing the economy. "The economic crisis has changed everything," writes Congressman Paul.
Paul is currently pushing for passage of a bill, H.R. 1207, that would allow for an unprecedented audit of the Federal Reserve. The bill has 289 co-sponsors, and is gaining solid momentum in the House of Representatives. Read the rest...CNBC
Bryan Caplan defends Scott Sumner (already we should suspect trouble) and remarks:
Looking at the numbers makes it hard to believe in a quick return to full employment. During the 1980-2 recession, there was high inflation. All employers had to do to get real wages down to full employment levels was (a) avoid nominal wage increases, and (b) wait. Now that we've actually got deflation, waiting doesn't help. Even with a pay freeze, workers are getting more overpaid by the day. [Emphasis added.]
Bryan Bryan Bryan! The CPI started falling sharply in August 2008. But then it bottomed out in December 2008. Since then, the (non-seasonally adjusted) CPI is up 2.7% (through August 2009), which is an annualized price inflation rate of more than 4 percent.
I am really baffled by Bryan's statement. Even the seasonally adjusted CPI is up 1.8% year-to-date (through August), which translates to an annualized rate of 2.7%. So why does Bryan imply prices are falling "by the day"? Is he looking at year/year figures and assuming past performance is indicative of the future?
(BTW if you are getting lost in all the numbers, just look at the picture of the price level. You can see how misleading the year/year figures are.)
"Before modern ventilation systems, coal miners would often take a caged canary underground with them. In the presence of deadly gases, the canary would first stop singing and soon die. That was all the evacuation warning early miners needed.
The price of gold is a referendum on the quantity and quality of paper money and, like the canary in the coal mine, it is signaling a warning: there’s trouble with the dollar reserve standard. Around the world the alert are looking for ways to abandon it..."
The price of gold yesterday hit an all-time high of $1,049 an ounce, capping a remarkable recovery in prices since this time last year, when gold sank to $700 an ounce amid concerns of a worldwide financial meltdown.
The recent upward surge in gold prices effectively resumed a relentless nine-year climb, which started off the decade at about $250 an ounce.
Due to inflation fears and a weakening dollar, some think gold could climb higher, to $1,200 or even $1,500 an ounce, though some skeptics believe there’s now a “gold bubble” that could pop. John Kattor, chief investment officer at Boston’s Eastern Investment Advisor, is a gold enthusiast.
“We own gold, so we’re bullish,” said Kattor.
But Bob MacIntosh, chief economist at Boston’s Eaton Vance Management, said investors may be making a big mistake if they’re buying gold to hedge against future inflation.
“I don’t see inflation (rising fast), at least in the foreseeable future,” he said.
Charles Goyette, author of the forthcoming book “Dollar Meltdown,” said the long-term trend points to strong gold prices, if only because the U.S. dollar is now so weak and other nations are questioning the long-term use of the dollar as the effective international reserve currency.
Alan Grayson And Ron Paul Ask Whether Bernanke Is "Fit To Serve"
Dear Chairman Dodd and members of the Banking Committee,
We are writing to ask you to postpone the confirmation of Ben Bernanke until the Federal Reserve releases documentation that will allow the public and the Senate to have a full understanding of the commitments that the Federal Reserve has made on our behalf.
Without such an understanding, it is impossible to know whether Chairman Bernanke is fit to serve another term and fulfill the Federal Reserve’s dual mandate to ensure price stability and full employment.
(Tom Petruno, LATimes) - Kyle Bass, the hedge fund manager who made a fortune betting against mortgage-backed securities in 2007... (is) convinced about inflation, too, even in the face of the deflationary forces now bearing down on the economy.
Bass, who heads Hayman Advisors in Dallas, writes:
Western democracies, communistic capitalists and Japanese deflationists are concurrently engaging in what may be the largest, global financial experiment in history. Everywhere you turn, governments are running enormous fiscal deficits financed by printing money. The greatest risk of these policies is that the quantitative easing will persist until the value of the currency equals the actual cost of printing the currency (which is just slightly above zero).
In the latest letter, Bass seems much more concerned about the U.S.:
There have been 28 episodes of hyperinflation in national economies in the 20th century, with 20 occurring after 1980. Peter Bernholz, professor emeritus of economics . . . at the University of Basel, has spent his career examining the intertwined worlds of politics and economics with special attention given to money. In his most recent book, "Monetary Regimes and Inflation: History, Economic and Political Relationships," Bernholz analyzes the 12 largest episodes of hyperinflation -- all of which were caused by financing huge public deficits through monetary creation. His conclusion: The tipping point for hyperinflation occurs when the government’s deficit exceeds 40% of its expenditures.
Uh-oh. Office of Management and Budget projections, Bass says, "imply that the U.S. will run deficits equal to 43.3% and 39.9% of expenditures in 2009 and 2010, respectively. One has to ask whether the U.S. reached the critical tipping point? . . . In fact, the recent price action in metals, the dollar and commodities suggests that the market is already anticipating the future."
"How can the economy maintain forward momentum if unemployment continues to rise and consumers remain in lock-down mode?"
TechTicker: Coincidentally (or not), the past few days has brought a raft of dour comments from the few analysts who correctly predicted the credit crisis before it became obvious to everyone.
Nouriel Roubini says "markets have gone up too much, too soon, too fast," and will retreat when economic news refutes the V-shaped consensus, Bloomberg reports.
Joseph Stiglitz told Bloomberg TV investors have become "irrationally exuberant" about prospects for a recovery. "There's a lot of risk...ahead of some big bumps."
Christopher Whalen tells Tech Ticker the fourth-quarter will be a "bloodbath" for banking as says stocks rallying while the "real economy is dying" is not a healthy sign.
Meredith Whitney warned about the likelihood of a second credit crunch, especially for small businesses, a WSJ op-ed last week.
Meanwhile, stocks are now 15%-20% overvalued based on Robert Shiller's long-term cyclically adjusted P/E ratio and Henry reports that Wall Street analysts are forecasting a return to record profit margins, which are only likely if more layoffs are coming, which begs the question:
"How can the economy maintain forward momentum if unemployment continues to rise and consumers remain in lock-down mode?"
NOW EVEN THE MAINSTREAM PRESS IS CALLING IT LIKE WE'VE BEEN SEEING IT!
In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading!
Robert Fisk, Independent.co.uk: In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
The fallout from the credit crisis has put the financial system of the United States under a microscope. Banker pay, lending practices and regulatory oversight are now topics of mainstream interest for the first time since the Great Depression.
As Congress debates whether or not to give more power to the Federal Reserve to watch over the financial system, Ron Paul, the Republican congressman from Texas, is arguing, as he has for years, for the government to go in the opposite direction and actually cut the Fed’s powers.
In an interview with DealBook on Thursday, Mr. Paul discussed his new book, “End the Fed,” as well as his views on Wall Street.
The outspoken lawmaker contends that the government is essentially controlled by the Fed and in collusion with Wall Street, and has created an unsustainable economic system through the excess printing of money. He predicts that the system will eventually break down and the dollar will collapse, creating economic chaos.
Here are edited and condensed excerpts from DealBook’s talk with Mr. Paul.
Q.
What would Wall Street look like without the Fed? Do you believe that Wall Street banks — which you’ve described as a “secretive cartel of powerful money managers” — would be able to manipulate interest rates if the Fed didn’t exist?
A.
No, the interest rate would be set by savers. Capital would come from savings, which is what happens in a free market. So if there were a lot of savings then interest rates would go down. This would give information to the marketplace, which is the most important thing that has to be corrected without a central bank: sending the right information out to borrowers, investors and savers.
Right now we don’t have a free market in interest rates, so it is basically price controls. Read the rest...
Clusterstock.com: Catherine Rampell at Economix has updated this miserable chart, showing job losses in this recession compared to recent ones (expressed as a percentage of peak employment).
The dark blue line that just keeps heading down represents current recession. Since the official start of the recession in December 2007, the economy has had a net loss of about 5.2 percent of its nonfarm payroll jobs.
The horizontal axis measures the number of months since the recession started. The vertical axis measures the share of pre-recession jobs that still exist.
As you can see, the current downturn started out similar to the 2001-05 and 1990-3 recessions, with job losses far less violent than those of the eighties and seventies. But around nine months in, things got ugly and kept getting uglier.
Almost 30 years ago, as a new decade dawned, Americans watched in morbid fascination as a small group of gay men in San Francisco began dying of a mysterious disease.
Did you catch my disingenuous use of the word "mysterious" in that sentence? There was nothing mysterious about these deaths, then or now. A bleeding-edge lifestyle, the harmonic convergence of three cultural revolutions, drug, sexual, and gay, took a heavy toll on its most sublime practitioners. They engaged in anonymous sex on an almost unheard of scale, self-administered antibiotics, thinking that this would keep them healthy (useless against viruses but deadly effective against friendly gut bacteria, vital to proper immune system function), and ingested recreational drugs like candy, especially "poppers" (carcinogenic nitrite inhalants, such as you might use to clean your VCR). The drug use, repeated bouts of STDs and parasites, and foreign antigens from thousands of other men floating around in the bloodstream took the inevitable toll on the human body. They literally blew out their own immune systems.
When Ronald Reagan took office in 1981, he had a mandate to downsize government, and the Centers for Disease Control and Prevention (CDC) was an obvious target. The "War on Cancer," declared by Nixon in 1971, had little to show for all the money spent. The CDC had been terribly embarrassed in 1976 when it tried to turn five soldiers having the flu into a potential national swine flu epidemic. A subchapter of this debacle was their attempt to seize on the completely coincidental outbreak of pneumonia among some old men at an American Legion convention in Philadelphia. The CDC used this as an excuse to rush out a vaccine that killed dozens of people, which is dozens more than did the flu itself. (As for "Legionnaire's Disease," it later turned out to be caused by a known microorganism commonly found in building air handlers, and had nothing to do with swine flu. Thousands of people get infected with it every year) [Johnny Carson once referred to the Legionnaire's Disease vaccine as "the only cure for which there is no known disease"]. Read the rest... James Foye LRC
Pat Buchanan, Antiwar.com: As one steps back and looks at a decade of U.S. intervention and war in the Middle East, what has it all availed us?
Iraq cost 4,000 U.S. dead, 30,000 wounded and a trillion dollars. It divided our country, alienated the Arab world, and left scores of thousands of Iraqi dead, and hundreds of thousands wounded, widowed and orphaned.
The Shia who now run the country are moving away from us, and closer to Iran, as we depart.
In Afghanistan, after eight years, we face a longer and bloodier war or, says McChrystal, "mission failure." With Iran, we are heading up a sanctions escalator toward yet another war. And 10 years of involvement has not brought the Palestinian conflict a centimeter closer to resolution.
The killers of 9/11 were over here because we were over there. How has being over there benefited us, to compensate for the cost?
Let John Crudele, NYPost, take you back to last year. It's a story about Goldman Sachs and the Treasury Secretary during the market meltdown:
Sept. 18, Paulson placed his first call of the day at 6:55 a.m., to Lloyd Blankfein, who succeeded Paulson as CEO of Goldman. It's unclear whether the two connected because Blankfein called Paulson minutes later.
And then Blankfein placed another call to Paulson at 7:05 a.m. for what looks like a 10-minute conversation.
After that Paulson called Christopher Cox, Securities and Exchange Commission Chairman twice; British Chancellor Alistair Darling and New York Federal Reserve head (and now Treasury Secretary) Tim Geithner two times.
Then Paulson took another call from Goldman's Blankfein.
It wasn't even 9 a.m. yet -- 30 minutes before the stock market was to open -- and Paulson and Blankfein had already exchanged three phone calls.
This wasn't particularly unusual.
On Wednesday, Sept. 17, the day the stock market was in trouble, Paulson spoke with Blankfein five times, including a pair of calls at 7:20 p.m. and 8:45 p.m. One of the earlier calls -- at 12:15 p.m. -- is listed on Paulson's log in the same five minute interval as a call to Geithner, which could indicate that this was a conference call.
If Paulson did set up a conference call, it would have been an extreme instance of putting someone who wielded a lot of power -- Geithner -- together with someone -- Blankfein -- who could profit from that connection.
And all of this doesn't include possible cell phone calls. The Treasury turned over to me Paulson's official schedule and phone records after I made a request under the Freedom of Information Act.
There's no way for me, or anyone else, to know what Blankfein and Paulson talked about during those first three calls on Sept. 18.
But it would be reasonable to assume that the conversation, coming as it did in a period of market turmoil, had something to do with what was happening on Wall Street.
So no matter how you slice, dice or excuse it, Blankfein by 9 a.m. would have had information that was not available to anyone else who makes their money trading securities. And, as you can imagine, there is a whole lot of value in that kind of inside access.
By the end of the day, the Dow was up 410 points in an astonishing comeback.
Clusterstock.com: This is what an economic strategy of pulling it forward looks like. In August, car buyers were going nuts with a $4,500 incentive to trade clunkers in for brand new cars. Many warned, of course, that these sales would simply end up decreasing future sales, getting us nowhere. Well, September's here, and... yeah. A monthly sales rate of over 14 million units annualized quickly fell to just above 9 million.
WASHINGTON, Oct 1 (Reuters) - Delinquencies in U.S. bank cards rose in the second quarter to 5 percent of all accounts, while delinquencies in direct auto loans showed improvement, dropping to 2.46 percent, the American Bankers Association said on Thursday.
Job losses, shorter work weeks and drops in incomes drove up consumer delinquencies during the quarter, with record highs reported in home equity loans, home equity lines of credit, and bank cards, the ABA said.
"The picture won't change until the labor market improves and the economy picks up steam. This is going to take time," said James Chessen, chief economist for the ABA.
The unemployment rate rose to 9.7 percent in August, the highest figure since 1983
